Design flaws in the Affordable Care Act

FOR YEARS, critics have charged that President Obama’s Affordable Care Act is a government takeover of the health-care system, which accounts for about a sixth of the economy. The criticism is feeble. Actually, as the law rolls out, some of the biggest threats to its success stem from the fact that its architects decided not to be more coercive.

Two major issues have cropped up since the phase-in began Oct. 1 that could undermine the law’s fundamental logic.

First is the challenge to enroll large numbers of people in private insurance plans. To work well, the law’s new insurance marketplaces need millions to sign up and enough healthy people paying into the system to offset the medical costs of the sick. But this week the Department of Health and Human Services admitted that enrollment is lagging. It announced that, as of the end of last month, 365,000 people have obtained private coverage through the new marketplaces. The number enrolled more than tripled in November, yet the projection was to have 1.2 million people signed up by now.

It is very likely that many more people will enroll as the HealthCare.gov Web site improves and as big coverage deadlines approach this month and next year. But the results hinge on one critical bit of policy — the often-attacked individual mandate, which requires that nearly everyone in the country have health insurance by March or else pay a fee. Unfortunately, the mandate is weak.

The penalty for lacking coverage next year is a mere $95, and it may be hard for the Internal Revenue Service to collect even that from some people. Healthy people might choose to forgo 12 months of premium payments and eat a much smaller annual fee. A larger fee, which was in early drafts of the law, would be a more effective incentive than what’s in place now.

The second alarming development concerns reports that insurance companies might be using backdoor methods to dissuade ill — and therefore expensive — patients from enrolling in their plans. Before the Affordable Care Act, insurers simply rejected applications from people with preexisting conditions. Now that’s illegal, which is one of the law’s centerpiece achievements. So, patients rights groups worry, insurers are limiting access to important pharmaceuticals, such as anti-HIV drugs, to push the ill away.

We don’t know how widespread this practice will be. So far, we have only anecdotes about suspiciously designed coverage plans for prescription drugs. Over time, regulators could try to crack down on the practice if it becomes a problem.

In the first few years, the law’s design should limit the benefits that companies could realize by screening out sick customers. But the fact that insurance companies have any opportunity to do this is the result of state and federal officials deciding to leave a number of decisions about drug coverage to insurance companies, instead of taking a prescriptive approach more akin to the rules that govern Medicare’s Part D drug program.

Though we would have made the individual mandate’s penalty larger, not every problem can or should be solved by federal regulation, and there is still a decent chance that the balance between regulation and liberty that the Affordable Care Act struck will work. If it does, the more rational health-care system that results will have been well worth the price in expanded government intervention in the health-care market.